Main currency pairs little changed

The dollar threatened to break lower for a time yesterday amid falling US bond yields and rising equity markets before regaining ground. It is not much changed from yesterday morning against the euro and sterling at around $1.0940 and $1.2730 respectively. EURGBP is also little changed, trading just under £0.86.

US bond yields finished well off their intra-day lows yesterday, after data showing a notable decline in (US) consumer inflation expectations had contributed to an earlier move down, closing only marginally lower overall. This is putting some pressure on European bonds this morning with yields edging higher. Meanwhile, it was a positive start to the week for equity markets with gains for both European and US stocks.

Fed Governor Bowman says if inflation continues “to fall closer to our 2% goal…it will eventually become appropriate to begin the process of lowering (interest rates) to prevent policy from becoming overly restrictive.” However she added that “we are not yet at that point” and cautioned that there’s a risk that “the recent easing in financial conditions encourages a reacceleration of growth, stalling the progress in lowering inflation, or even causing inflation to reaccelerate.”

Economic confidence in the Euro area improved in December according to the European Commission’s Economic Sentiment Indicator, which rose to its highest level in seven months led by increased confidence amongst services sector firms.

Economic data due today include Euro area unemployment, which is expected to have remained at a record low of 6.5% in November, and the small business optimism index and trade balance in the US.